Why fuel prices are soaring

It’s not just greed or Russia or Biden... at least not totally

By ROBERT JORDAN
Of the Record staff
Posted 6/21/22

Rising gas prices are fueling economists to predict a recession by the end of the year and are hammering trucking companies with threats of running on empty.

This item is available in full to subscribers.

Please log in to continue

Log in

Why fuel prices are soaring

It’s not just greed or Russia or Biden... at least not totally

Posted

Rising gas prices are fueling economists to predict a recession by the end of the year and are hammering trucking companies with threats of running on empty. So The Daily Record turned to an economics professor at Campbell University and a local landscaping company that depends on fuel for everything to better understand the pain behind the pumps.

Dr. Mark Steckbeck is an Associate Professor of Economics and the Lundy Chair in Business Philosophy at Campbell University. He spoke with the Record about how the U.S. got to this point and his opinion of what’s to come.

Why are these prices rising so high and so fast?

“Rumors of oil companies holding back on production to inflate prices for shareholders has been pretty much debunked,” said Steckbeck. He explained much of the reason for the surging prices is, in fact, increased demand. COVID-19 caused the demand for fuel to plummet in 2020. “In fact, in late 2020 oil futures were literally negative for a day,” he said.

When future prices turn negative, it technically means that oil refiners must pay traders to buy their product. This is one of the reasons gas prices sunk as low as they did.

Today, demand continues to rise as people get out and travel more. Due to this significant increase in demand, we will not see prices decrease much anytime soon, Steckbeck shared. “I ask persons who view oil companies as greedy, ‘Why did they allow gas to decrease to $2.50 per gallon? Was that a momentary lapse in their greed?’”

Steckbeck explained that competition is what drives the price for fuel. “Supply has returned only partially because oil companies are reluctant to bring oil out to the market. Storing oil is very expensive.”

Are worldwide situations contributing to the problem?

Germany has ceased using nuclear power. That country turned to Russia for its supply of oil. Now, Germany is in the process of moving away from these fuels.

The geo-political situation in Europe is also creating havoc with oil prices. The U.S. is once again exporting oil. This raises the price as well.

“United States Secretary of Energy Jennifer Granholm urged oil companies to increase production,” Steckbeck said. “Next, she proclaims ending use of carbon based energy in five years. ... If you were an oil producer, how would you respond to this conflicted messaging? The administration could not have made a bigger misstep.”

Steckbeck thinks that this sort of verbiage is sending the wrong message to oil companies.

“If I’m an oil producer, I am not going to invest in new sources of energy when I fear in five years my investment is going to turn to zero.”

The professor suggests several other ideas are going to exacerbate the fuel price problem.

He explains that releasing oil reserves is not going to have a positive impact. Proposed gas rebates will not be successful either. Drivers will just continue to use more oil.

“If we do not decrease the demand by driving less, the prices will not come down,” he said.

Shutting down construction of the Keystone pipeline project did not have an effect on where pricing is today, because there was never supply generated by this project, Steckbeck added.

Summarily, as long as the U.S. continues to increase its demand for more carbon fuels, the price of gas is going to rise.

How do these problems overlap into the economic strains being experienced today?

According to Steckbeck, possibilities of economic stabilization depend with whom you speak.

“Economists are not good at predicting,” he said. “The Fed increased their balance sheet by $4 trillion between 2000 and 2022. Stimulus programs which were intended to help only served to fuel the inflation. The programs intended to improve economic situations are having a huge impact.“

He continues, “I have a pessimistic view. The U.S. has been headed in this direction for over a decade. Housing price bubbles are fueled by the Fed’s mortgage buy back. This was feeding the bubble. It is going to have to correct. The Fed is arguing for a smooth landing. I think we’ll be into recession by the end of this year or early next year.”

What effect is the rise in fuel costs having on local businesses?

On a local level, The Daily Record contacted Crystal Miller Lockwood, the office manager at Miller’s Lawn and Landscaping of Dunn. We asked her to share her company’s experiences with surging fuel prices, its impact on her company’s operation and services.

Is there any part of your business not affected by the rising cost of fuel?

“From supplies for lawn and landscaping, to mowers, to heavy equipment, to tractor-trailers every facet of our business revolves around the cost of fuel. We have had to adjust pricing where we charge more money for shorter distances.”

Is it worse for the trucking division of Miller’s?

“A little over a month ago, if all our tractor-trailers filled up on the same day, we were seeing an average cost of $1,000. One day last week, four of these trucks filled up and the cost was $2,600. This occurred in Pennsylvania which has a higher fuel tax rate than North Carolina,” Lockwood said.

“Refrigerated reefer trailers are another situation. Previously, we could fill tanks on reefers with non-highway use diesel which is cheaper. Now, most truck stops have done away with non-highway diesel pumps. Last week, in Forest Park, Georgia, one of our drivers filled his reefer tank with 21 gallons of fuel. The cost at $5.399 per gallon was $114.58 just to keep the trailer chilled. We can get the highway use tax refunded, but we now have to front the money at the time of purchase.”

“One of the most difficult problems we are experiencing is most load brokers are not paying any additional monies for deliveries. This translates into trucks earning nearly $2 less per mile than before fuel prices began to race up.”

Are you able to find less expensive sources for fuels?

“We are fortunate to have a local distributor that provides wholesale fuel for our lawn maintenance division,” Lockwood said. “A little over a month ago, we were able to purchase fuel at $4.199 per gallon for 1,000 gallons. Our most recent purchase for 1,000 gallons was $5.399 per gallon.”

Are you still able to maintain full service for your customers?

“We cannot cutback,” Lockwood said. “We can only increase cost for services as dictated by costs of operation. As long as our customers have the need and continue to utilize us for their services, we will continue to operate.”

What, in your opinion, is causing these fuel prices to escalate?

“Truly the green activists are a large part of the problem. Their attempts to do away with carbon fuels are helping to increase the costs of these products,” she said.

These are just a few of the questions arising out of the Record’s investigation of these soaring costs. Check in future editions for more on this developing story.

Robert Jordan can be reached at rjordan@mydailyrecord.com or 910-230-2037.

Comments

No comments on this story | Please log in to comment by clicking here
Please log in or register to add your comment